Build a Financial Plan [Business Plan Basics #8]

Aspiring entrepreneurs — it’s time to talk money and your financial plan. As in, how much you have for your business, how much you need for your business, and how much you hope to make through your business.

The reason talking money is so critical for your Business Plan is that it helps people you might reach out to for funding and seed money understand your financial needs and determine whether or not they can invest in a way that is mutually beneficial.

Financial Plan

Before you tackle the Financial Plan in your Business Plan, ask yourself a few questions:

Will you need to borrow money to make your business happen?

Do you have money of your own that you plan to invest in bringing your business to life?

If you borrow money, how much would you be comfortable owing to other people and what would be your plan for paying them back?

Next, let’s look at the three main parts that you’ll want to include in your Financial Plan: the Income Statement, the Balance Sheet, and the Cash Flow Statement.

If you’ve already been running your business and/or making money with your goods or services, you have what you need for an income statement. The Income Statement is basically an overview of the money IN (income you’ve made from sales and other revenue streams) and the expenses OUT (how much you’ve spent on supplies or material or anything else you need to run your business). The difference between the two is your “net income.” The equation looks like this: money in – expenses out = net income. You’ll want to include all three of these figures in your income statement.

The Balance Sheet highlights your company’s “assets” and “liabilities,” with assets being defined as anything you own as part of your business that has a monetary value (this could be things like your computer, your supplies, your products, etc.) and liabilities defined as any debts or monetary obligations you have (a loan you have to pay off, a piece of equipment you are renting, etc.). The balance sheet is different from the Income Statement because it focuses on what assets and liabilities are tangible and real at any point in time.

This document is kind of like your “future income plan.” In the Cash Flow Statement you’ll want to lay out your projected income and expenses over at least a one-year period by including a chart that shows your hopeful monthly income and predicted expenses. The purpose of the Cash Flow Statement is to show investors that you’re looking to grow and build your business and that you have a plan to increase your profits over time.

Once you’ve created these three statements, you’ll want to write up a brief summary of each for inclusion in your Business Plan. And one last thing — your financial statements should be super simple and clear to read. You can download our templates here to make creating them easier for you!